Accounting Under the Hood
The purpose of this page is to describe some of the principles and features of Forwardpass's accounting system.
Forwardpass is a general purpose accounting system.
We deliberately created a general purpose accounting system instead of one devoted to property or club management. It can be configured for a large number of different purposes.
However, we recognize that there is often a one to one relationship between customers and properties or customers and memberships. To account for this, Forwardpass synthesizes customer information into the property and membership records so users may work on both records as if they are one.
Forwardpass uses the basic accounting equation.
The foundation of double entry accounting is the equation: Assets always equal Liabilities + Equity. This means that the community's assets are funded by some combination of liabilities (borrowing) or equity (shareholder contributions or the generation of equity from net income).
Forwardpass automatically calculates retained earnings.
At the end of the accounting year, Forwardpass automatically converts the previous year's net income to the designated retained earnings equity account.
Forwardpass creates virtual sub-ledgers.
When you ask for a financial statement, Forwardpass gathers all of the relevant transactions (and journal entries) in order to produce the report. This sort of thing wasn't possible when computers were relatively slow. Now, immense amounts of data can be crunched on the fly. This means sub ledgers cannot get out of synch with the source transactions. You also never "close" books in Forwardpass, transferring information to another ledger. Instead, you simply set the lock date. Transactions before that date cannot be changed. If you need to go back (and you have the appropriate permissions), you simply set the lock date back in time.
Forwardpass observes the rules of double-entry bookkeeping.
Each transaction (or journal entry) records a debit and a credit. Behind the scenes, these debits and credits are totaled in temporary journals in order to create financial statements. For instance if a customer is charged a $400 rental payment, the following debit and credit is recorded:
This means Rental Income goes up and Accounts Receivable goes up. When the customer pays, this debit and credit is recorded:
Cash goes up and Accounts Receivable goes down.
Forwardpass caches transactional data in order to produce reports.
Though Forwardpass doesn't maintain sub-ledgers, it does cache temporary ledgers that can be reloaded automatically when needed. These temporary caches are automatically discarded if information is changed within the source transactions (usually by changing a transaction in the past). This caching system means subsequent reports don't have to crunch the same data over and over.
Forwardpass can produce reports based on an accrual, cash, or modified accrual basis.
Because Forwardpass produces all financial statements directly from the original transactions, it is capable of producing reports using different accounting bases as desired:
- Accrual - Revenue is recognized when the customer is billed. Expenses are recognized when a vendor bill is entered into the system. This is the default accounting basis. The accrual basis provides the most complete picture of the books.
- Cash - Revenue is recognized when payment is received from a customer. Expenses are recognized when a vendor is paid. Accounts Receivable and accounts payable will generally not appear on the financial statements.
- Hybrid (Accrue Income) - Revenue is recognized when the customer is billed. Expenses are recognized when a vendor bill is paid. Accounts receivable balances will appear on the financial statements; accounts payable balances will not appear.
- Hybrid (Accrue Expenses) - Revenue is recognized when the customer pays. Expenses are recognized when a vendor bill is entered into the system. Accounts receivable balances will generally not appear on the financial statements; accounts payable balances will appear.
There is no need to change a configuration setting or create journal entries. Just select the basis on the financial statement page and generate the report. It is possible to conduct your accounting in full accrual but generate cash or hybrid reports for stakeholders who have trouble understanding accrual accounting. Because the accounting basis is such a fluid concept in Forward Pass, the basis is included at the bottom of all financial statements to eliminate any confusion about what is being displayed in the report.
Forwardpass has the following basic account types.
- Accounts Receivable
- Current Asset
- Fixed Asset
- Other Asset
- Accounts Payable
- Credit Card
- Current Liability
- Long Term Liability
- Prepayment Liability
- Cost of Goods Sold
- Other Expense
- Other Income
Forwardpass supports transaction classes.
In addition to accounts, transactions may be segmented into classes for a variety of purposes. For instance, classes may be created for divisions or departments. For example, you may want to track telephone expenses for three different departments. You could create three expense accounts for each department. With classes, you can create a single expense account but designate the departmental class when the bills are entered.
Forwardpass is capable of fund accounting.
Top level classes are considered funds for production of certain reports. Individual funds within a community also observe the accounting equation (Assets = Liabilities + Equity). If you create a Balance Sheet by Fund statement, you will see that that the top half of each fund equals the bottom half just like the overall balance sheet.
Forwardpass automatically calculates due to / due from entries.
If there's a transactional imbalance between the funds, Forwardpass can insert due to/due from entries into the Balance Sheet by Fund using the Due To and Due From accounts set in Account Settings. This essentially means one fund owes money to another fund. If a fund is owed money by one or more funds, this amount will appear as an asset labeled Due From. If the fund owes money to one or more funds, this amount will appear as a liability labeled Due To.
Forwardpass automatically reclassifies all or part of a credit when applied to a transaction in another fund.
When a credit is applied against a transaction in another fund, the liability behind the credit is transferred from one fund to another. Because each fund must observe the basic accounting equation (Assets = Liabilities + Equity), this inter-fund transfer will cause an imbalance between funds. Without adjustment, this may lead to negative assets and liabilities on the Balance Sheet by Fund and possibly the generation of Due To/Due From entries to rebalance the funds. To avoid this, Forwardpass implicitly changes the credit's class (all or a portion) to the class of the transaction with the outstanding balance. If the credit was produced by a customer overpayment, the cash behind the overpayment will also change class to the transaction's fund at the time the credit is applied. The system inserts debits and credits into the general ledger to account for these transfers as they occur.
Forwardpass can automatically reverse a journal entry.
Any journal entry can become self-reversing simply by entering a date into the entry. On that date, all of the debits and credits in the entry are automatically reversed.
Forwardpass stores previous versions of your transactions.
Any time a user changes a transaction, a copy of the previous transaction is stored. You can view the list of versions on the History tab of the transaction.
Forwardpass uses the Direct Method for producing a Statement of Cash Flows.
There are two conventional ways to create a cash flow statement: Indirect and Direct. The Indirect Method uses differences in balance sheet accounts (asset, liability and equity) adjusted for depreciation to determine cash flows. It is essentially a clever shortcut that minimizes the amount of work necessary to create the report. The Direct Method looks at the source of the flows themselves: primarily incoming payments from customers and outgoing payments to vendors. The Direct Method generally includes more information about the flows of cash. The Forwardpass cash flow statement details the flows by account but also includes amounts for customer prepayments, payments for reinstated charges, credit card refunds, and returned checks. Like most cash flow statements, the report is broken down by operating, investment, and financing activities. The type of cash flow activity is set for each account in the chart of accounts.
Forwardpass can do project accounting.
Forwardpass has an extensive case management system than can be configured for a variety of purposes. Among other things, it can be used to create projects. These projects can be assigned to individual transactions in the accounting system. By filtering on a specific project, you can create financial statements for a specific project.
Forwardpass has an extensive permission system.
Permissions allow administrators to limit access with extreme granularity so no one can access records that they have no need to view. Each permission is designated: None, View, Edit, Manage. By using only View permissions, it is possible to create user accounts for directors and other stake holders that need to review records but should not be allowed to edit them.
Forwardpass has separation of duties features.
Forwardpass has a rich permission system that allows you assign specific duties to individual users. You can use these permissions to enforce separation of duties for a variety of purposes. For instances, you can separate check writing responsibilities by creating two users. One user can create checks but cannot approve them. The second user can cannot create a check but can approve checks.
Forwardpass groups transactions into batches.
A batch is a collection of transactions created by a single user. The transactions within a batch are usually contiguous by order of entry. There are two types of batches: Customer Batches and Vendor Batches. A batch of customer payments is used to create a bank deposit.
Prepayments and other credits can be automatically applied to automated charges
This means you can accept and track prepaid assessments, membership fees, or other types of recurring charges. These prepayments are automatically applied at the time the charge is generated. Any remaining balance can be staged for electronic payment by payment card or ACH. In terms of the financial statements, applying a prepaid assessment debits a prepayment account and credits an accounts receivable account. They system allows you to specify a prepayment account when an prepayment is received. This means you can distinguish between different types of prepayment liabilities on your balance sheet.
Forwardpass has an integrated Point of Sale (POS).
Transactions created in the POS are instantly reflected in the financial statements. There's no need to synchronize data with third party software or services. When someone buys a bottle of water at one of your locations, the income and cash instantly appear on your balance sheet.
Forwardpass immediately accounts for payments in the website portal.
When a customer makes a payment on your website, it immediately appears on your financial statements. And , if a moment later, the customer generates a statement, the payment will be listed there as well. There is no need for overnight synchronization or awkward import scripts that are difficult to maintain.